Q&A: Limited Information

Q Our co-op board has begun a policy of forbidding individual members to communicate with other shareholders about any issues in the building, not just legal matters. Any queries are answered with a stock reply. This board did not run as a slate so one hopes they have varied opinions. Is this done in other buildings, and is it recommended?

—Manhattan Shareholder

A “The amount and type of information which a shareholder is entitled to receive is fairly limited under most corporate documents and the business corporation law,” says attorney Stewart E. Wurtzel with the Manhattan-based law firm of Tane Waterman & Wurtzel, P.C. “Shareholders are generally entitled to receive minutes of the annual shareholder's meetings, an annual financial statement and access to certain books and records of the corporation. The board is not legally obligated to comply with any other demands for information including requests for explanations as to why the board made the decision it did.

“The question here though is not so much as to what information the shareholder is entitled to receive, but rather whether a director may be prohibited from divulging any information to the shareholders. A board policy prohibiting any director from divulging confidential information or limiting what information is revealed to shareholders is sound and reasonable. However, each board member owes a fiduciary duty to the corporation and all of its shareholders, and any rule that is adopted by the board which interferes with an individual director's ability to carry out his fiduciary duty may be unreasonable. Additionally, a director running for election may certainly reveal what his/her positions and votes were on an issue and may campaign on behalf of other qualified individuals by showing that current directors voted for or against a particular issue. Further, a director cannot be prohibited from obtaining information from a shareholder in order to make a decision on how to vote.

“As a matter of law, there cannot be any legal recommendation as to how much information should be disclosed, other than requiring that the board disclose what it is obligated by corporate documents or law to provide. As to matters for which the board needs shareholder approval or seeks a non-binding consensus view from its shareholders on an issue, the board can decide how much and what information need be divulged if they wish to obtain formal or informal approval of an issue from its shareholders. If the board is spending way too much of its time trying to respond to questions on mundane matters, the board may be well served by limiting all information that is released. On the flip side, there are many circumstances where providing shareholders with more information than is required has proven to be beneficial. Unless a director's ability to perform his or her function as a fiduciary is improperly restricted, the amount of information that a board chooses or allows to be revealed beyond the minimum required by law will be protected by the business judgment rule.”

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